Maruti Suzuki plans to mothball Gurgaon facility and open a new one in Haryana

BusinessToday.In
September 12, 2018

Perhaps the fate of Maruti Suzuki's Gurgaon factory was sealed in part on the day it rolled out its last Maruti 800 in 2012. After three decades of making the car that put the average middle-class Indian in the driver's seat, the company at the time had mulled partly dismantling the plant - Gurgaon was getting too congested to have a car assembly plant even back then. Matters have reportedly finally reached a tipping point.

According to The Economic Times, Maruti Suzuki plans to shift its Gurgaon factory to another location in Haryana but it would take 4-5 years for a new facility to become operational. "There was a long pending request from residents to decongest the Gurgaon area. The movement of trucks was also an issue and the local administration is also very well aware of it," a person in the know of the company's plans told the daily. "The company is asking for land which is not too far so that there is no major challenge faced by the vendors and working population."

The buzz is that it has already requested the Haryana government to directly allocate 1,200-1,400 acres in Sohna, about 25 km south of Gurgaon, at a fair price. But the state, which has a policy of auctioning land and not allotting directly, is yet to take a call on this.

According to the daily, the plan suggests that Maruti will be investing in the facility and not the Japanese parent, Suzuki. The latter is focussing on its relatively newer facility of Suzuki Motor Gujarat, its 100 per cent subsidiary set up to produce automobiles with an envisaged installed capacity of 7.5 lakh units annually. This way, the local company can continue to expand capacity for its existing models while Suzuki focusses on the development of new generation models, including electric and hybrid vehicles.

Maruti Suzuki, which commands nearly 50 per cent of the passenger vehicle market in the country, manufactures 6-7 lakh units out of Gurgaon and has been using the facility to the hilt with demand outpacing supply over the past few years. The plan is to house three-four assembly lines in the proposed facility, which will likely need an investment of Rs 10,000-15,000 crore. A source said that if the company goes ahead with the plan, it will unfurl in stages as the existing facility is mothballed and the new one is made operational.

So the move will not only enable Maruti Suzuki to ramp up production, but also help unlock tremendous real estate value on the Gurgaon site eventually. Besides, the company's shareholders who had initially raised objections to the contract manufacturing agreement with Suzuki Motor Gujarat, are likely to be won over easier for this new plan. That's because the new factory will help with more productive use of free cash flow that Maruti Suzuki is generating - expected in the range of Rs 6,600-8,200 crore a year during FY18-21.

In addition, the company is sitting on cash and cash equivalent of Rs 34,000 crore. Given that setting up an assembly line to produce 250,000 vehicles a year typically commands an investment of Rs 1,800-2,000 crore, Maruti Suzuki has more than enough funds to bankroll its plans for a new factory.